The Blog

Can Medical Bills Affect Credit?

Can Medical Bills Affect Credit?

The medical billing process can wreak havoc on
both providers’ and patients’ sense of financial security. The process is often
fraught with complexities that make the process lengthy and confusing.

The reality is that those difficulties are a
relevant concern for patients facing medical debt, and for the providers
administering care. Often insurance providers bring costly claims against practices, and are
unwilling to pay their portion of customer’s bills.

In the United States, the majority of
individuals, at least at some point in their lives will experience medical
debt, and the complicated process associated with handling claims and insurance
can increase the odds that the debt wont be paid in a timely manner. Whether
those complexities or communication issues are to blame, or patients simply
cannot pay, their credit score can be impacted.

Medical debt can have a serious impact on one’s
credit, but it is also distinct from the rest of the billing world, operating within
its own unique set of rules.

When Medical Bills Get Reported
to Credit Bureaus

Historically, in the United States there has not
been any type of special grace period for those who are facing medical debt
repayment issues. So no matter what kind of complexities slowed the process, if
the process was delayed, that meant the account moved to medical debt
collections and a decreased credit score resulted.

Michelle Andrews wrote for NPR that “A
recently released report says medical debt is the No. 1 reason consumers
reported being contacted by a collection agency.” She goes on to note that it’s
the reason that 59 percent of individuals cite for being contacted by an
agency.

‍

But 2017 became a year that credit reporting
bureaus altered the timeline that governs the process.

Experian explained shortly before the changes
took effect, “On September 15, 2017, the three major credit bureaus—Experian,
Equifax and TransUnion—will add a 180-day grace period for consumers to resolve
any medical debt before it appears as a past due amount on their credit
report.”

The bottom line is that this change will make it
more difficult for a medical debt to harm an individual's credit, even if their
account would have traditionally moved to medical collections.

How Medical Bills in Collections
Affect Credit

When hospitals and doctors are unable to collect patient balances they do not normally
report the incident themselves. However, they do turn those bills over to
collections, who in turn will report the bills to credit reporting companies.
The problem with healthcare costs that are unexpected or poorly prepared for is
that they can rapidly become as much or more of a financial burden as they are
a health burden.

The difficulty also arose because providers
weren’t sticking to any standardized process. Instead, they would send bills to
a collections agency using their own digression and timeline.

"Without a standardized process, some bills
get sent to collections because they're 30 or 60 days past due as opposed to
six months," Julie Kalkowski, executive director of the Financial Hope
Collaborative at Creighton University, told CNN Money.

They also concluded that, “The addition of any
paid or unpaid collections tradeline of at least $100 to a consumer’s credit
report will reduce a score of 680 by over 40 points and a score of 780 by over
100 points.”

The real world cost of that is that for many
borrowers the consequences of having a medical debt sent to collections is that
they will have to pay a higher interest rate to borrow, if they remain eligible
to borrow at all.

How Paying Overdue Medical Bills
Affects Credit

There is hope even for those who do have overdue
bills. It seems that the current system will allow for borrowers to work towards
a future wherein they are less impacted by their unpaid medical bills.

The changes have paved the way for alternative
methods of recovery for patients with outstanding medical debt.

Repayment
plans: Providers need past-due receivables to be paid.
For those who know that they will not be able to make their payment on time,
they may be able to contact their provider before
the plan goes to collections. Even if the account has already been sent to
collections it is worthwhile to see if a patient can negotiate with a provider.

Removal of
paid account from credit report: Even after the six
month grace period, if insurance does end up paying for some of the bills still
negatively impacting an individual’s credit score, the bills can be removed
from an individual’s credit score.

Ultimately, the complexity surrounding medical
billing and revenue recovery means that the process will never be simple for those
involved. For patients and medical providers alike, it is vital to understand
how unpaid claims can impact credit. It is also valuable to see how the credit
reporting industry has adjusted in an attempt to better accommodate a system
that is complex and easily complicated.